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The past two months have not been pleasant for the stock market - BSE's Sensitive Index has lost almost eight per cent since its recent high in mid-April. But leading market players say the worst might be over, notwithstanding the worst weekly setback of this year due to a weak monsoon forecast and uncertainty over further rate cuts by the central bank.
"The recent fall was a panic reaction due to monsoon fears and RBI's (the Reserve Bank of India's) hawkish outlook. But I feel the selling has been overdone. From here on, I expect the selling pressure to subside," says Rakesh Arora, head of research, Macquarie.
While Arora expects consolidation, Citi India's head of capital market origination, Arvind Vashistha, believes things should start looking up. "We expect Indian markets to gradually move up from here. Citi Research has a target of 32,200 for December 2015 (for the Sensex), moving up to 35,000 by June 2016."
Not everyone, though, is convinced. Some like Mahesh Nandurkar, India Strategist, CLSA, believe the Indian market is still not quite cheap. "Earnings growth for 2015-16 estimated at 19 per cent is also very optimistic in our view and we see a downside risk to that number. For the next three to six months, the market might move sideways and see some correction. Our December 2015 Sensex target is 28,500."
The majority feel there are three key things due to which the market will not see much selling pressure. Most feel while there aren't many positive cues, the market isn't expecting many negative surprises, either. For example, many were worried that if the Organization of the Petroleum Exporting Countries (Opec) had cut crude oil production to keep prices high, that would have added to inflationary pressures.
"The negative news has more or less been priced in. Now the market will look at international or domestic cues to take direction," says U R Bhat, managing director, Dalton Capital.
The other reason why stocks might not fall sharply is the deepening of the market due to an increased absorption capability of domestic players. Excluding Daiichi Sankyo's sale of shares, foreign institutional investors (FIIs) have been net-sellers to the tune of Rs 15, 264 crore since April 13, when the Sensex closed at a high of 29,004 points. On the other hand, mutual funds have bought shares worth Rs 13,676 crore. Clearly, they have absorbed the selling pressure significantly. "Earlier, FIIs' sale of a billion dollars would have led to carnage. Today, mutual funds and insurance companies are easily able to absorb sale of a couple of billion dollars," adds Bhat.
Also, the market is trading quite cheap. As against the Sensex's average 10-year price-to-earnings (PE) multiple of 19.58 times, the forward one-year PE stands at 15.81 times, according to Bloomberg.
"The market has turned relatively cheap compared to its 10-year average. This augurs well for potential investors," adds Arora.
The key domestic issues that most players are looking at include the passage of the goods & services tax (GST) and land acquisition Bills in Parliament. Corporate results are also expected to improve. R Venkatraman, managing director, IIFL group, says: "We believe corporate earnings will recover in the next two-three quarters. Government reforms will show their impact. And if the US Federal Reserve delays its rate hike, the FII interest in India will remain intact."
Citi's Vashistha adds an improvement in key macroeconomic indicators, acceleration of corporate India's earnings momentum, the monsoon and the passage of key Bills during the next session of Parliament will be key triggers for the market. Global oil prices, the timing of the Fed rate increase and any geopolitical risks will all have a bearing on the market.
Notwithstanding these short-term worries, the long-term growth prospects for the Indian economy remain attractive. So, the recent correction has provided a buying opportunity for the long-term investors, adds Nandurkar.
POSITIVE OUTLOOK
"We expect Indian markets to gradually move up. Citi Research has a target of 32,200 for December 2015 (for Sensex), moving up to 35,000 by June 2016"
Arvind Vashistha, Head of capital market origination, Citi India
"The recent fall was a panic reaction due to monsoon fears and RBI's (the Reserve Bank of India's) hawkish outlook. But I feel the selling has been overdone. From here on, I expect the selling pressure to subside"
Rakesh Arora, Research head, Macquarie
"Earnings growth for 2015-16, estimated at 19%, is also very optimistic in our view, and we see downside risk to that number. For the next three to six months, the market might move sideways and see some correction. Our December 2015 Sensex target is 28,500"
Mahesh Nandurkar, India strategist, CLSA
"Earlier, FIIs' sale of a billion dollars would have led to carnage. Today, mutual funds and insurance companies are easily able to absorb the sale of a couple of billion dollars"
U R Bhat, MD, Dalton Capital
"We believe corporate earnings will recover in the next two-three quarters. Government reforms will show their impact. And, if the US Federal Reserve delays its rate hike, the FII interest in India will remain intact"
R Venkatraman, MD, IIFL group
